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Darla Pollman Rogers

Attorney At Law

2019 SD Legislative Interim Study Committee 1


SD Co-op Stats

2019 SD Legislative Interim Study Committee 2


South Dakota Utility Providers
South Dakota has three distinct models for delivering electricity
to consumers.

Investor Owned Utilities Municipal Electric Utilities Rural Electric Cooperatives


Owned by Shareholders Owned by Government Owned by Members

2019 SD Legislative Interim Study Committee 3


Territorial Act of 1975

Assigned Utilities a Territory to Serve


• Avoid duplication of services
• Avoid unnecessary encumbrance of landscape
• Planned generation, transmission & distribution
• Obligation to serve everyone requesting service

2019 SD Legislative Interim Study Committee 4


Exceptions to the Rule
• Utilities mutually agree with PUC oversight & approval
• Municipal Utilities have the statutory right to take from electric
cooperatives & investor-owned utilities

2019 SD Legislative Interim Study Committee 5


2019 SD Legislative Interim Study Committee 6
Annexation of Territory
Accomplished
• By Petition
• By Agreement
• By Resolution

2019 SD Legislative Interim Study Committee 7


Why SDREA Introduced SB 66
• After Annexation, municipal has 1 year to give notice of intent to
provide power to annexed area
• Incumbent Utility is Powerless to Stop Taking
• No Hearing/No PUC Approval Required
• Compensation Formula – not Adequate

2019 SD Legislative Interim Study Committee 8


Problems With Current Law
• The Scales of Fairness are Tipped
• The Process is Flawed
• Fosters Cherry-Picking of Customers
• Inability for Cooperatives to Plan
• Inadequate Compensation

2019 SD Legislative Interim Study Committee 9


35 Municipal Electric Systems
• 310 Municipal
Communities in South
Dakota
• 35 Served by Municipal
Electric
• 275 of the 310 have
frozen service territory
(89% of municipalities)

2019 SD Legislative Interim Study Committee 10


Solution
Protect Assigned Service Territories

Allow Privately Negotiated Agreements


with PUC Approval

No Restrictions on Annexation

2019 SD Legislative Interim Study Committee 11


Darla Pollman Rogers
Attorney At Law

2019 SD Legislative Interim Study Committee 12


Tim McCarthy
Sioux Valley Energy CEO/General Manager

2019 SD Legislative Interim Study Committee 1


Lost Revenue vs. Compensation
• Sioux Valley Energy has lost approximately $21.5 million in
revenue because of territorial takings during the last 20 years.
• Compensation from municipal electrics to Sioux Valley Energy
over past 20 years has been $2.1 million.

2019 SD Legislative Interim Study Committee 2


Best Western Plus
Southridge Office Complex

Global Polymer Industries

Custom Touch Homes

First Line Funding Group Kibble Equipment

2019 SD Legislative Interim Study Committee 3


Fireworks Outlet and Park-it Market

2019 SD Legislative Interim Study Committee 4


The Floral Shop Greenhouse

2019 SD Legislative Interim Study Committee 5


Sinclair Gas Station

2019 SD Legislative Interim Study Committee 6


2019 SD Legislative Interim Study Committee 7
Madison Regional Health System

2019 SD Legislative Interim Study Committee 8


St. Thomas Cemetery

2019 SD Legislative Interim Study Committee 9


Mustang Seeds

2019 SD Legislative Interim Study Committee 10


2019 SD Legislative Interim Study Committee 11
2019 SD Legislative Interim Study Committee 12
Brookings
Brookings
Takings Since 1977
• More Than 2,600 Acres
• More Than 1,600 Houses
• 81 Businesses – including:
• Daktronics
• Bel Brands
• Swiftel Center
• Larson Ice Center
• Prairie AquaTech
• Capital Credit Services

2019 SD Legislative Interim Study Committee 13


Average Density of South Dakota
Service Areas

Electric cooperatives serve 2.5 members


per mile of line.
Municipal electrics serve 42 customers per
mile of line.

2019 SD Legislative Interim Study Committee 14


Sioux Valley Energy City of Sioux Falls

Sioux Valley Energy

Xcel Energy
Xcel Energy

Southeastern
Electric Cooperative
Southeastern Electric
2019 SD Legislative Interim Study Committee Cooperative 15
Community Partner

RDLG Grant
Program
Rural Development Loan & Rural Electric Economic
Development (REED) Fund Operation Round Up
Grant Program

2019 SD Legislative Interim Study Committee 16


Taxes Support Schools
Sioux Valley Energy has paid
approximately $18 million in taxes to
local school districts during the last
decade.

2019 SD Legislative Interim Study Committee 17


Tim McCarthy
Sioux Valley Energy CEO/General Manager

2019 SD Legislative Interim Study Committee 18


Dave Eide
Codington-Clark Electric Cooperative General Manager

1
Codington-Clark
Electric

City of
Watertown

Light pink areas are


Northwestern Energy
territories

2
Density Comparisons
Britton

Watertown Municipal Utility:


Sisseton • 13,009 meters
• 37 square miles
Webster
- COMPARED TO -

Electric Cooperatives:
Milbank
13,827
• Codington-Clark: 3,330 meters
meters
Clark • H-D Electric: 3,632 meters
Clear Lake • Lake Region: 3,470 meters 6,230
• Whetstone: 3,395 meters total sq.
Bryant
miles

3
Blue Area: Watertown city
limits

4
Blue Area: Watertown city
limits

Blue and yellow areas combined:


Watertown’s electric territory
boundary 5
6
River Ridge
Estates and
River Ridge 4th
Additions

Annexed
road

7
Borns and Kak
Additions

8
Borns and Kak Removed Codington-
Additions Clark power line

Codington-Clark power lines


9
SD National
Guard
Readiness
Center

10
Lake City
Dairy Addition

11
Territory boundary
between Northern Electric
and Codington-Clark
Electric

Clark

Territory boundary
between Northwestern
and Codington-Clark
Electric

12
Long Term Planning
• Codington-Clark borrows about $2 million each
year for infrastructure.
• Most of our loans are amortized over 30+ years to
spread out costs and keep rates low.
• We also borrow in the form of retained capital
credits.

13
Community Partners
• $948,000 in loans to several businesses

Dakota Butcher Trav’s Outfitters

14
Community Partners
• $300,000, 0% interest
loan to Watertown
Development Company

• $432,000 to Glacial Lakes


Energy ethanol plant

15
We have provided $1.68 million to
promote Watertown.

16
The current law allows the
government to shift costs to the
member-owners of electric
cooperatives.

17
Dave Eide
Codington-Clark Electric Cooperative General Manger

18
Chris Larson
Clay-Union Electric CEO/General Manager

2019 SD Legislative Interim Study Committee 1


2019 SD Legislative Interim Study Committee 2
City of Vermillion substation
and Clay-Union substation are
less than one mile apart.

2019 SD Legislative Interim Study Committee 3


This was a bare-ground
territorial taking in 1996. Four
new businesses have located
here in the last ten years but
there has been no compensation
to Clay-Union Electric.

2019 SD Legislative Interim Study Committee 4


Strip territorial taking of
mostly bare ground to
circumvent Clay-Union
territory established in 1970s
and position City of Vermillion
for future takings.

2019 SD Legislative Interim Study Committee 5


Clay-Union Electric
• Electric cooperatives operate on a not-for-profit basis.
• Electric cooperatives pay several taxes.
• Payroll Tax
• Property Tax
• Kilowatt Hour Tax
• State Sales Tax
• City Sales Tax
• Contractor’s Excise Tax
• Electric Municipal Tax

2019 SD Legislative Interim Study Committee 6


Generation & Transmission Co-ops

2019 SD Legislative Interim Study Committee 7


Long-Range Planning
• Clay-Union Electric
• 4-Year Construction Plans
• 10-Year Financial Forecasts
• East River, Rushmore, and Basin
• 25 to 30-Year Forecasts and Generation and Transmission Planning

• Government Takings Disrupt Long-Range Planning

2019 SD Legislative Interim Study Committee 8


Territorial Taking Impact

• Clay-Union members lose sales of 7 Million


kWh’s every year.
• The lost revenue could decrease Clay-Union
rates by 4%.

2019 SD Legislative Interim Study Committee 9


Compensation For Territorial Takings
Since 1999 Clay-Union Electric
has received nearly $31,000
from the City of Vermillion to
compensate the co-op for lost
members and $9,000 in
compensation for facilities.

2019 SD Legislative Interim Study Committee 10


Vermillion Growth Areas

2019 SD Legislative Interim Study Committee 11


Clay County and City of Vermillion Joint Jurisdictional Zoning Area (JJZA)

2019 SD Legislative Interim Study Committee 12


Vermillion Planning & Zoning
Commission Memo (February 11, 2019)

• JJZA is acronym for Joint Jurisdictional Zoning Area around Vermillion.

2019 SD Legislative Interim Study Committee 13


Clay-Union Is A Community Partner

National Music Museum (Vermillion Area


Vermillion United Way Chamber and Development Company)
• $400,000 Rural Electric Economic • Approved a $1.2 million REED Fund loan
Development (REED) Fund loan for • $300,000 zero-interest Rural Economic
the Vermillion United Way. Development Loan & Grant (RDLG) Program
loan.

2019 SD Legislative Interim Study Committee 14


Linda Salmonson
East River Electric Power Cooperative Economic Development Manager

2019 SD Legislative Interim Study Committee 1


Electricity is not generally the
primary driver of economic
development site selection or
decision making.

2
GOED Top Projects
2018 2017 2016
• Agropur – Lake Norden • Hendrix Genetics – Beresford • Royal Canin – North Sioux City
• Terex – Watertown • Vantage Point Solutions – Mitchell • GCC Dacotah – Rapid City
• Graco – Sioux Falls • Gage Brothers – Sioux Falls • Farmers Business Network – Sioux
• Max Pro – Woonsocket • Otter Tail Power – Deuel County Falls
• Dakota Seafood – Rapid City • SAB Biotherapeutics – Lincoln • Interstates Control Systems – Sioux
County Falls
• Geronimo Energy – Clark County
• VRC Metal Systems – Rapid City • South Dakota Partners – Clear Lake
• Intrinsic Materials – Rapid City
• Red’s All-Natural Burritos – North • Synchrony Financial – Rapid City
• Prairie AquaTech - Volga
Sioux City • Vermillion Technology Center -
Vermillion
• Performance Pet Products –
Mitchell
• Balcon Enterprises – Elk Point
• Great Plains Processing – Yankton
• Century Custom Molding – *Highlighted Projects Located in Investor-
Beresford Owned or Co-op Service Territory

2019 SD Legislative Interim Study Committee 3


Source: SDReadyToWork.com

2019 SD Legislative Interim Study Committee 4


Winning Strategies For Rural Investment
• Innovative, Unique and Targeted Strategy
• Financial and Personnel Resources
• Workforce to Meet Existing and Future Businesses
• Community Assets – (e.g. broadband, shovel-ready sites,
buildings, and utilities)
• Communities Where People Want to Live (stabilize and grow
rural population)
Source: Site Selectors Guild

2019 SD Legislative Interim Study Committee 5


South Dakota Jobs vs. Workforce
50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

available workers openings

2019 SD Legislative Interim Study Committee 6


South Dakota Communities
• 310 municipal communities in SD
• 35 served by municipal electric
• 275 of the 310 have frozen service territory

2019 SD Legislative Interim Study Committee 7


2019 SD Legislative Interim Study Committee 8
Co-op and Community Interdependence

2019 SD Legislative Interim Study Committee 9


REED Fund Since 1996
$41 Million in Capital
$100 Million Loaned
333 Loans
26 Cooperatives

2019 SD Legislative Interim Study Committee 10


REED Fund Projects By Utility

$51.8 million
$33.2 million

$15.3 million

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REED Fund Projects

MedGene Labs, Brookings LifeFloor, Madison

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REED Fund Projects

SDSU Growth Partnership, Brookings National Music Museum, Vermillion

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REED Fund Loans by Utility Group

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REED Sources of Capital
16 sources of capital
• Federal funds
• Private capital
• Grants
• Loans

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REED Fund Impact
$800 million in leveraged funds
9,300 jobs
2.2 million square feet of facilities

2019 SD Legislative Interim Study Committee 16


Linda Salmonson
East River Electric Power Cooperative Economic Development Manager

2019 SD Legislative Interim Study Committee 17


Edward Anderson
General Manager
South Dakota Rural Electric Association, Pierre, S.D.

2019 SD Legislative Interim Study Committee 1


History leading up to 1975 law
• Three sectors of industry supported territory reform

• Rate regulation was on the table

• Deal was cut


• Municipalities insisted on ability to displace incumbent utilities
• Co-ops did not support, but accepted it.

2019 SD Legislative Interim Study Committee 2


1975 Law History
• Differences in densities between cities and electric cooperatives

• Economics are straightforward: Density is everything.


• Distribution of costs of building, operating and maintaining a
system across a customer or member base.
• Systematic loss through taking can NEVER be recovered.

2019 SD Legislative Interim Study Committee 3


Lost Revenue vs. Compensation
Cumulative Lost Revenue vs. Cumulative Compensation
$40,000,000

$35,000,000 Lost Revenue

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000
Compensation
$0

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98

01

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08
07
99

00

20

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20
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20
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20

20

20

20

20

20

20
20
20

Cumulative Lost Revenue Cumulative Compensation

2019 SD Legislative Interim Study Committee 4


Aberdeen

Spearfish
Sturgis
Huron
Rapid City

Mitchell
Chamberlain Sioux Falls

Yankton

2019 SD Legislative Interim Study Committee 5


Unilateral taking of service
territory by government
holds the interests of
government superior to any
other participant in that
industry.

2019 SD Legislative Interim Study Committee 6